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2008 Annual Meeting ● Assemblée annuelle 2008

Québec

2008 Annual Meeting ● Assemblée annuelle 2008

Québec

Total Career

Benchmark Process

Total Career

Benchmark Process

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Total Career Benchmark Process

Why does Canada need TCBP To Increase Fairness

Person to Person Employer to Employee Public Sector to Private Sector

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Total Career Benchmark Process

Why does Canada need TCBP? (cont.) To Increase Benefits by Reducing Costs

Reduce Bureaucracy Standardize Administration and Benefits Take Maximum Advantage of Modern

Technology

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Total Career Benchmark Process

Why does Canada need TCBP (cont.) To Make the System Sustainable

Reasonable and consistent sharing of risks and rewards

Reduce demographic risk Focus on primary purpose of a

retirement system – guaranteed lifetime income20

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Total Career Benchmark Process

Why does Canada need TCBP (cont.) Keep the Good; Eliminate the Bad

Keep employees AND employer contributions

Eliminate the “hidden tontine” in DB plans

Eliminate the super complex bureaucratic requirements20

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Total Career Benchmark Process What does TCBP do?

Increases Fairness Everyone has the chance to attain the “ideal”

pension Differences from Employer to Employer will

be by “quantity” not by “design” Maximizes flexibility available to individuals

both before and after retirement Allows a carry forward of both contribution

and benefit room in a fair way Recognizes government sponsored benefits

in determining targets

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Total Career Benchmark Process

What does TCBP do? (cont.) Maximizes Benefits by Reducing Costs

Provides clear benchmarks for projecting and appreciating retirement benefits

Makes Standardized Administration possible Transfers professional time from bureaucratic

tasks to creative solutions

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Total Career Benchmark Process What does TCBP do? (cont.)

TCBP Makes System Sustainable Changes the way in which tax-sheltered

funds are accrued such that:• Financial risk is reduced• Employee understanding is increased• The “asymmetry” between employer and

employee is eliminated• Bureaucracy and complexity are reduced

Reduces demographic risk for plan sponsors Focuses on a guaranteed lifetime income

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Total Career Benchmark Process

What does TCBP do? (cont.) Keeps the Good

Employees and employers both contribute By using their “Personal Account” employees

can accrue • early retirement benefits• survivor benefits• benefits based on best 5 consecutive

years earnings• post retirement health funds

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Total Career Benchmark Process

What does TCBP do? (cont.) Eliminates the Bad

Eliminates the “hidden tontine” in DB plans• No cross subsidization of members • Plan sponsor’s costs are minimally

affected by any employee decisions The administrative requirements for almost all

plan sponsors will be no greater than any other payroll deduction 20

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Total Career Benchmark Process

What is the TCBP process? Complex behind the scenes but very

simple for end-users TCBP terminology will become common

lingo like the Richter Scale DB plans will have the same design but

can vary by accrual rate. The accrued benefit will be life only but

will be indexed before and after retirement like the CPP.

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Total Career Benchmark Process

What is the TCBP process? (cont.) Centralized Retirement Accounts

including a Lifetime Account and a Personal Account

The CPP methodology of expressing a member’s annual earnings as a multiple of the YMPE will be used to track pensionable earnings

The annual factor will be called the Annual Retirement Factor (ARF) and will drive the entire TCBP process

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Total Career Benchmark Process

The Quiz

For all questions assume that the year is 2015, the YMPE is $50,000 and all answers are in current 2015 dollars.

Q1: Jordan has an ARF of 1.400. What are Jordan’s Pensionable earnings?

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Total Career Benchmark Process

What is the TCBP process? The target lifetime accrual will be a career

average pension indexed like the YMPE and CPP before and after retirement

During the Designated Pension Accrual Period (from Age 30 to Age 65) the maximum target lifetime accrual will be 70% of career average earnings

The annual DB benefit limit will be based on 2% of the YMPE times a maximum ARF of 3.000.

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Total Career Benchmark Process

The Quiz

Q2: What is Jordan’s DB limit for 2015?

Q3: Jordan’s twin sister earns $200,000 in 2015. What is her maximum DB limit for 2015?

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Total Career Benchmark Process

The Quiz

Q4: Jordan has just turned 45 and has 15 years in the Designated Pension Accrual Period. Jordan’s total ARF’s to date are 16.000. What is Jordan’s Accrued Target Lifetime Pension? 20

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Total Career Benchmark Process

What is the TCBP process? The annual tax-sheltered limits will be

derived from the value of the annual target lifetime accrual.

There will be separate limits for the Lifetime and the Personal Accounts

The Lifetime component drives the total value As age and career advances the proportion of

total value allocated to Lifetime vs Personal will change20

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Total Career Benchmark Process

What is the TCBP process? TCBP includes adjustment tools which allows

the use of the Personal Account to provide for a. Periods of non-participation in the

work force b. An adjustment from “career average

earnings” to “best 5 average earnings” c. Ancillary benefits such as spousal

survivor benefits, early retirement benefits, bridge benefits, post-retirement health benefits etc.

d. An increase in Income Replacement Ratio by recognizing service prior to the Designated Pension Accrual Period

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Total Career Benchmark Process

The Quiz

Q5: If over the next 20 years Jordan’s ARFs total 34 what is Jordan’s Career Target Lifetime Pension?

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Total Career Benchmark Process

The Quiz

Q6: If over Jordan’s best 5 consecutive years the average ARF is 2.000 how much can Jordan’s Career Target Lifetime Pension be increased to move from Career Average Earnings to Best 5 Average Earnings?

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Total Career Benchmark ProcessConclusion

The TCBP Process is a fundamental first step in redefining Canadian Pension Plans.

Much work would need to be done for the initial setup.

The end result will be a system which is consistent with both modern technology as well as individual needs and goals.

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